Editore"s Note
Tilting at Windmills

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November 23, 2003
By: Kevin Drum

WAL-MART....The LA Times is running Part 1 of a 3-part series on Wal-Mart today. Pretty interesting reading, even though the basic Wal-Mart story is familiar by now. Here's the nut:

The company has prospered by elevating one goal above all others: cutting prices relentlessly. U.S. economists say its tightfistedness has not only boosted its own bottom line, but also helped hold down the inflation rate for the entire country. Consumers reap the benefits every time they push a cart through Wal-Mart's checkout lines.

Yet Wal-Mart's astonishing success exacts a heavy price.

By squeezing suppliers to cut wholesale costs, the company has hastened the flight of U.S. manufacturing jobs overseas. By scouring the globe for the cheapest goods, it has driven factory jobs from one poor nation to another.

Productivity gains have made goods increasingly affordable since the Industrial Revolution, but there have been other factors at work too. In the mid-20th century, thanks in part to vigorous unionization, American businesses steadily paid their workers more, thus creating a growing class of people who could afford the products they made. Wal-Mart, by contrast, pays their workers less, which allows them to cut prices and therefore makes their products affordable to more people.

So which is the better and more sustainable model? Increasing the overall affordability of goods by creating a larger class of people who can afford them? Or increasing the overall affordability of goods by squeezing the blue collar workers who make them and thus lowering prices?

Both models work, but one works by building up the working class and the other works by tearing it down. I'll take Door #1.

Kevin Drum 11:05 AM Permalink | Trackbacks

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